November 29, 2021 oil and gas

Oil prices decline sharply due to Omicron, supply increase fears

KUWAIT: The prices of oil last Friday saw their sharpest decline in two months, the biggest since April 2020, due to the announcement of the new coronavirus variant Omicron and fears of supply increase. The prices also fell as fears over travel restrictions seemed to be looming on the horizon, which might cause a decline in economic growth as well as demand for energy. The price of Kuwaiti oil saw a drop by $4.45 to $77.80 per barrel last Friday,

the same case with the Brent crude and the West Texas Intermediate, which went down respectively by $9.50 and $10.24 to settle on $72.72 and $68.15 per barrels. The fears of an increase of oil supplies in the first quarter of 2022 also might affect the prices especially with the US announcement concerning strategic reserve withdraws in coordination with major oil consuming countries.

In this regard, several oil experts said that investors would keep a close eye on the upcoming meeting for the OPEC+ group next Thursday to determine oil policies in January. Oil analyst Ahmad Karam indicated that oil prices reached over $80 pb in recently helped by the return to normalcy in Kuwait and elsewhere. With the announcement of Omicron, pushing price down by $10 per barrel, the world went into panic especially with the World Health Organization (WHO) deeming this variant as the “most contagious”.

He added that the announcement by US President Joe Biden concerning the usage of 50 million barrels from the US strategic reserve had also contributed to the sharp decline. However, Karam predicted that the decline would be short-lived due to the vast development in the treatment of COVID-19 via vaccines. In addition, the fact that countries were taking from their reserves would have to compensate with supplies of oil, which would lead an increase in prices.

Meanwhile, oil refining and marketing expert Abdulhameed Al-Awadhi said that there were geopolitical reasons for the decline other than the appearance of Omicron and fears of supply increase. Important happenings like the Iranian nuclear file, the elections in Libya and other matters have an impact on prices, he affirmed. He viewed the American decision to withdraw from its strategic reserve as a matter of low impact, indicating that the amount could be reproduced in three days by American refineries, which has a capacity of 18 million barrels a day.

The whole process of withdrawing from the strategic reserve and pumping that into the oil market will take weeks, Awadhi said, adding that the current maximum US export capacity on a global scale was only at four million barrels per day. He predicted that OPEC+ would keep production levels as is to keep global market balance.

Oil expert and advisor Abdulsamee Bahbahani said in the meantime that Biden’s announcement aimed at reducing oil prices globally via increase in production, which in turn would stifle the increase of fuel prices in the US. He added that the withdrawal from strategic reserves would not be of benefit unless it was met with an increase in daily production on a world-scale.


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